Opening up new markets
Today, when a borrower makes a loan application, we score their application using a wide range of information, such as income, mortgage and debt levels, to give them a rating from A*-E.
Currently we only offer individual lenders the opportunity to lend to borrowers we rate as A*-C.
Over the last year we have been testing the performance of D and E-rated borrowers with our institutional lenders. Based on these tests, we now feel confident to offer loans with D and E-rated customers to all lenders.
All customers accepted by Zopa must continue to meet our strict lending criteria for UK residency, minimum age, income and affordability. Customers may be scored as D or E due to a number of factors, including higher levels of personal debt or limited credit histories, which makes them slightly higher risk than our C-rated customers. Including these markets in the lending mix for individual lenders does not mean we will be approving more loans or taking on more risk; we will simply be sharing a proportion of the higher yielding borrowers across individual and institutional investors.
New product – without Safeguard
We know that some, but not all, lenders want the opportunity to achieve higher yields by taking on a higher level of risk. That’s why we plan to offer a new product that will enable lenders to accept A*- E-rated loans without Safeguard. Offering this product without Safeguard is better for borrowers – it means they will not have to pay a high upfront fee – and it will also be better for lenders who want to take on more risk for a higher expected return after defaults.
Since our launch nearly 11 years ago, we have advocated the model of diversification by lending your investment in small chunks to many borrowers. This is especially important with a non-Safeguard product: it means that even if a borrower defaults, only a small portion of your overall loan book is affected and the impact of bad debt is minimised.
We look forward to opening up these new markets to our lenders and will keep you updated when our new products are due to launch.